Ritchie says we should sell off the QE bonds

But the most important thing I want to note here is that given the level of concern that clearly exists with regards to security within the financial sector, the government now has a duty to respond to this crisis by providing the market with more bonds. What the markets are clearly indicating is a very high level of panic and when fear of this order exists then it is the job of the government to dispel it. It has just one way it can do that. It can underpin the risk in the market by providing the risk-free savings mechanisms that it alone can create, which are government bonds. Companies, individuals and pension funds are all desperate for these bonds at present, and with good reason: the alternatives that they face are highly risky, as is cash as far as they are concerned, because those who are panicking do not enjoy a guarantee that their deposits in our banks are safe. This is why they need bonds. And the only responsible thing for the government to do is to supply those bonds.

Great.

Government has £400 billion of those bonds parked at the bank of England. Time to sell ’em, eh?

Then every person in the market would know that they could have the security for their savings that they want. And simply knowing that would stabilise markets.

Will the government do this? I very much doubt it, because it’s not what governments have done. But it’s risk-free, responsible and vastly cheaper than allowing panic to grow and credit markets to be de-stabilised.

Yep. So, let’s do it.

7 thoughts on “Ritchie says we should sell off the QE bonds”

  1. “Companies, individuals and pension funds are all desperate for these bonds at present, and with good reason: the alternatives that they face are highly risky”

    Citation needed

  2. According to fullfact, it would appear that most people already have all the bonds they need

    “Most UK government gilts are owned by British institutions, and some by UK households. They get the interest payments.

    UK insurance companies and pension funds own almost a third: about 30%.

    The Bank of England owns about a quarter.

    Other UK financial institutions like banks own 17%, just over a sixth.

    Another quarter of the government’s debts, about 27%, are owed to foreign institutions. That’s called the UK’s external debt, and the interest payments go outside the UK.”

    Surely the scurvy-ridden ex Prof is not talking rubbish….

  3. Here is a thoughtful piece on some implications of the oil price drop and how it might affect banks and institutions who are finding the fracking industry – their bonds are trading at distressed levels.

    Yesterday, UK gilts went to negative yields. But the fat one knows that everyone is clamouring for gilts, because they are safe! So safe that you pay the government interest on them. That’s great news for pension funds.

    Also, reflect on what a bank’s business model is when yields are negative. Maybe too complex for the spotty ex Prof.

    https://notayesmanseconomics.wordpress.com/2020/03/09/welcome-to-the-oil-price-shock-of-2020/

  4. “Yesterday, UK gilts went to negative yields. But the fat one knows that everyone is clamouring for gilts, because they are safe! So safe that you pay the government interest on them. That’s great news for pension funds.”

    Hang on, the logical conclusion of gilt yields going negative is that the demand for them is very high, even though the yield is negative, because all the alternatives out there are worse. Ergo negative yield gilts are a sign that things are very bad out there and people want a ‘safe’ haven for their money, at the expense of losing a small known % per year.

    So I have to say that Spud has a point here (stopped clock and all) – demand for gilts is massive, lets sell people as much as they want while the demand is high. Wasn’t this effectively what the Swiss were doing during the financial crisis – demand for Swiss francs as a safe haven was through the roof, so they sold them to anyone who wanted them to keep the price (ie exchange rate) down. After all if large numbers of gilts were flooded into the market, prices would fall, yields would rise, which is good for your pension fund……..

  5. ‘This is why they need bonds. And the only responsible thing for the government to do is to supply those bonds.’

    Government bonds are a promise to pay you back with money from future tax payers. YOU are the future taxpayer.

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